VAT on internet use to go down

The value-added tax on internet use might be cut by 5 percentage points from the existing 15 percent to meet a longstanding demand of the ICT businesses.

Finance Minister AMA Muhith gave the assurance on bringing down the VAT rate at a meeting at his office at the Economic Relations Division in the capital.

Seven trade bodies providing digital services have been urging the government for the last seven years to lessen the tax burden on internet use.

However, a 5 percent supplementary duty and 1 percent surcharge will remain in place along with the VAT for using internet through mobile phones, said Syed Almas Kabir, president of the Bangladesh Association of Software and Information Services (BASIS), who attended the meeting.

ICT and Telecom Minister Mustafa Jabbar said the government has resolved all the problems with the digital industry and fulfilled all of their demands.

He, however, declined to specify the outcomes of the meeting.

"The finance minister will announce the changes in parliament when the budget for 2018-19 is passed. But we are happy as we have realised all of our demands."

Tax incidence for internet usage on mobile phones amounts to 21.75 percent. However, connections provided by the internet service providers are not subjected to any supplementary duty and surcharge.

The government earns about Tk 1,100 crore from VAT on internet use. But if the government sacrifices this amount for two years, the sector will fetch Tk 5,000 crore for the national coffer every year, industry leaders said.

Kabir said the finance minister also gave assurance to fully withdraw the VAT on all kinds of IT-enabled services, which saw a rise in VAT to 5 percent in 2018-19 from 4.5 percent in the outgoing fiscal year.

In his budget speech, Muhith also proposed to cut customs duty on software imports to 5 percent from 25 percent – a move that will have a detrimental impact on the domestic software industry, according to industry leaders.

"The finance minister has agreed to reduce the customs duty for four categories of software as they are not developed in the country," Kabir added.

For the first time, the government also imposed 5 percent VAT on computer hardware, but Kabir said the meeting also decided to withdraw it.

On the day the budget was unveiled, the National Board of Revenue issued an order levying 15 percent VAT on mobile handset assembling. Now, the VAT will be withdrawn, said the BASIS chief.

Because of the VAT and other duties, tax incidence on mobile handset assembling came to 34.2 percent, higher than 31.1 percent tax incidence on imported mobile sets.

NBR Chairman Md Mosharraf Hossain Bhuiyan and ICT Secretary Subir Kishore Choudhury were also present.